An innovative new finance vehicle that has secured £1bn for the construction of 11,000 new affordable homes in Wales and the west of England over the next seven years has been confirmed.

The initiative brings together Cardiff-based Bellerophon Partnerships – which has pioneered innovative funding techniques for affordable housing– and Porthcwlis, a new off balance sheet subsidiary of RCT Homes.

RCT Homes became Wales’ largest social landlord when it took over the ownership and management of Rhondda Cynon Taf Council’s entire housing stock in December 2007.

Bellerophon and Porthcwlis predict that the finance and delivery model will enable the public sector, housing associations and private developers to come together to build up to 11,000 affordable homes without the need for capital grant funding from either the Welsh or UK governments.

The new model has already secured £1bn in equity backing from Legal & General, which recently confirmed its move into the social housing lending market. The fund will be demand led, so at this stage it is impossible to say how many homes will be built in Wales.

However, the shortage of affordable housing is particularly acute in Wales and Bellerophon and Porthcwlis say the model will provide another option for housing organisations to help the Welsh Government to meet its targets over the next few years.

Huw Lewis, housing, regeneration and heritage minister, said: “The Welsh Government is acutely aware that demand for affordable housing continues to grow and that we need to deliver even more homes in future, which is why we have set the ambitious target of providing 7,500 additional affordable homes during this term of government.

“With tightening budgets this will prove quite a challenge, so we are working hard to develop new ways in which we can attract other investment. The Porthcwlis scheme is just one example of the innovative methods we are exploring and I congratulate RCT Homes and Bellerophon on the launch of this exciting and much-needed new housing finance initiative.”

Bellerophon and Porthcwlis believe the fund can unlock two significant sticking points in the Welsh housing market: unused planning obligations and the use of public sector land.

Planning permission for housing developments often includes a stipulation that a proportion should be affordable homes, usually built by housing associations.

However, many of these homes remain unbuilt as housing associations cannot find developers willing to build at below market price in an already depressed Welsh housing market without grant subsidy.

In the whole of Wales in 2011-12, only 35 affordable homes were built on public sector land without the help of government grants.

Deputy chief executive of RCT Homes and board member of Porthcwlis, Malcolm Wilson, said: “We have spoken to Wales’ larger housing associations and they have all expressed an interest.

“This model could transform the prospects for affordable housing in Wales.

“For instance, the Welsh Government had predicted that only 30 new affordable homes would be built in Rhondda Cynon Taff in 2013-14 without capital grant. Porthcwlis, will start work on more than 90 new affordable homes in the borough within the next six months as well as around 100 in various other locations throughout South Wales.”

Organisations providing land for housing schemes will have a stake in financed projects and will receive a share of rental income. Legal & General will be repaid at a rate of 4% per annum – again financed by rental income from built affordable homes.

The finance model will be open to any public sector body or housing association operating within Wales, Wiltshire, Gloucestershire, North and North East Somerset, Bristol, Bath and Swindon.